SELFLUBE INC V JJMT INC

STATE OF MICHIGAN
COURT OF APPEALS
SELFLUBE, INC.,
FOR PUBLICATION
March 25, 2008
9:05 a.m.
Plaintiff,
v
No. 261743
Kent Circuit Court
LC No. 03-005497-CK
JJMT, INC., and JAMES A. DeHAAN,
Individually,
Defendants/Cross­
Defendants/Fourth-Party
Defendants-Appellants,
Advance Sheets Version
and
ACTION INDUSTRIAL SUPPLY COMPANY,
Defendant/Cross-Plaintiff/ThirdParty Plaintiff,
v
H.S. DIE & ENGINEERING, INC.,
Third-Party Defendant/Fourth-Party
Plaintiff-Appellee,
and
THOMAS WOOD,
Defendant.
Before: O’Connell, P.J., and White and Markey, JJ.
PER CURIAM.
Fourth-party-defendants James A. DeHaan and JJMT, Inc., appeal by leave granted the
permanent injunction entered by the circuit court. We vacate the injunction, concluding that it
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violates the Employee Retirement Income Security Act (ERISA), 29 USC 1001 et seq., and
remand to the circuit court for proceedings consistent with this opinion.
This case arose out of an embezzlement scheme by fourth-party defendant DeHaan. He
was employed as the purchasing manager for fourth-party plaintiff H.S. Die & Engineering, Inc.
(HSD), and ordered supplies and materials for HSD from various vendors, including plaintiff
Selflube, Inc. DeHaan placed orders in the name of JJMT, Inc., a corporation of which he was
the owner and president, and had the products shipped to HSD. It was alleged that DeHaan then
had Action Industrial Supply Company provide packing slips [and invoices], but no actual
goods, to HSD at a greatly inflated price. HSD paid the Action Industrial invoices at the
marked-up price, Action Industrial kept a percentage of the payment and forwarded the
remainder to JJMT. DeHaan then paid Selflube and the other vendors at the lower price through
JJMT, thereby retaining substantial profits. One of DeHaan’s accomplices pleaded guilty in
federal court and identified DeHaan as the organizer of the scheme.
Selflube filed suit against DeHaan and JJMT. Other cross-claims and counterclaims
involving the other named parties followed. DeHaan applied for a distribution from his 401(k)
retirement plan. HSD, being the plan administrator, became aware of DeHaan’s application and
thereafter filed the fourth-party complaint against DeHaan and JJMT that is relevant to this
appeal, alleging common-law counts of fraud, civil conspiracy, tortious interference with
advantageous business relationships or expectancies, and statutory conversion. A temporary
restraining order was entered.
DeHaan ultimately failed to defend against HSD’s complaint, and HSD requested a
default judgment. A default was entered with regard to the relevant cross-complaint against
JJMT and DeHaan. Before the default was entered, however, DeHaan challenged the
preliminary injunction and moved to set it aside, arguing that HSD had no legal right to an
injunction against his 401(k) account because the funds were regulated by ERISA and were
protected by ERISA’s antialienation provision, 29 USC 1056(d)(1)1. DeHaan argued that
pension funds are protected even when the plan participant has committed malfeasance, relying
on Guidry v Sheet Metal Workers Nat’l Pension Fund, 493 US 365; 110 S Ct 680; 107 L Ed 2d
782 (1990) (Guidry I).
HSD argued in response to DeHaan’s motion that the preliminary injunction did not
violate ERISA’s antialienation provision, relying on State Treasurer v Abbott, 468 Mich 143;
660 NW2d 714 (2003). Ultimately, the circuit court entered an order granting HSD a permanent
injunction, which provided:
1. This Court’s November 24, 2004, Preliminary Injunction is replaced by
this Permanent Injunction;
1
“Each pension plan shall provide that benefits provided under the plan may not be assigned or
alienated.” 29 USC 1056(d)(1).
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2. James A. DeHaan is prohibited from transferring, disposing of,
encumbering, taking a distribution of, or liquidating DeHaan’s interest in H.S. Die
and Engineering’s Employees 401(k) Salary Savings Plan (“the Plan”) without 30
days prior written notice to H.S. Die;
3. If DeHaan requests any transfer, disposition, distribution or liquidation
of any of his interest in the Plan, including but not limited to a direct rollover to
an individual retirement account, he shall require the Plan Administrator to
transfer all distributed funds to a financial institution and an account selected by
H.S. Die;
4. Following the transfer of any funds from the Plan, DeHaan is
prohibited from transferring, disposing of, encumbering, taking a distribution of,
or liquidating DeHaan’s interest in the account selected by H.S. Die;
5. All those in active concert or participation with DeHaan are prohibited
from assisting DeHaan from concealing, transferring, disposing of, encumbering,
or liquidating DeHaan’s interest in the Plan, except in accordance with this Order;
6. The financial institution that receives the funds distributed from the
Plan is required to prohibit the withdrawal, transfer, disposition, liquidation or
encumbrance of any of DeHaan’s funds, money or assets from the accounts until
further Order of this Court; and
7. DeHaan will provide the financial institution that receives these funds
with a copy of this Order.
This appeal ensued.
I
DeHaan asserts that the circuit court’s injunction impermissibly interferes with his rights
as a plan participant under ERISA. He offers several arguments in support of this position.
A
DeHaan argues that the circuit court lacked jurisdiction to issue the permanent injunction
and that HSD lacks standing to bring this action. We disagree.
“Whether a court has subject-matter jurisdiction is a question of law subject to review de
novo.” Cherry Growers, Inc v Agricultural Marketing & Bargaining Bd, 240 Mich App 153,
160; 610 NW2d 613 (2000). DeHaan’s jurisdictional argument relies on 29 USC 1132(e)(1),
which provides:
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Except for actions under subsection (a)(1)(B) of this section[2], the district
courts of the United States shall have exclusive jurisdiction of civil actions under
this subchapter brought by the Secretary or by a participant, beneficiary,
fiduciary, or any person referred to in section 1021(f)(1)[3] [29 USC 1021(f)(1)] of
this title. State courts of competent jurisdiction and district courts of the United
States shall have concurrent jurisdiction of actions under paragraphs (1)(B)[4] and
(7)[5] of subsection (a) of this section.
DeHaan argues that HSD’s claims do not fall under either of the excepted subsections providing
for concurrent jurisdiction [1132(a)(1)(B) and (a)(7)] and, therefore, federal district courts have
exclusive jurisdiction. The statute’s plain language, however, states that it only applies to
actions brought “under this subchapter . . . .” 29 USC 1132(e)(1). DeHaan does not argue that
HSD’s action was brought under ERISA, and it clearly was not. HSD’s cause of action is a
state-common-law-based claim for fraud, civil conspiracy, tortious interference with
advantageous business relationships or expectancies, and statutory conversion. HSD’s claim for
injunctive relief is also based on state law and was not brought under ERISA. DeHaan’s claim
that the circuit court lacked jurisdiction is therefore without merit.
B
DeHaan’s argument that HSD lacks standing is similarly without merit. DeHaan argues
that HSD, as an employer, lacks standing under 29 USC 1132(e)(1). However, the standing
provisions pertain only to civil actions brought “under this subchapter . . . .” 29 USC 1132(e)(1).
The instant action is not such a civil action.
C
Next, DeHaan argues that ERISA preempts any state-law basis for HSD’s claim, and that
his rights are protected by ERISA’s antialienation provision, § 1056(d)(1). We agree that to the
extent that the injunction conflicts with ERISA, it is preempted.
1
A determination of preemption involves statutory interpretation and is reviewed de novo.
Nelson v Assoc Financial Services Co of Indiana, Inc, 253 Mich App 580, 587; 659 NW2d 635
(2002). Federal preemption originates in the Supremacy Clause, US Const, art VI, cl 2, which
2
Covering civil actions brought by a participant or beneficiary to recover benefits, or to enforce
or clarify his rights under the terms of the plan.
3
Such persons include employers, administrators of multiemployer defined benefit plans, labor
organizations, and the Pension Benefit Guaranty Corporation.
4
See note 3.
5
Providing that a civil action may be brought by a state to enforce compliance with a qualified
medical child support order.
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states that the law of the United States “shall be the supreme Law of the Land.” Ryan v
Brunswick Corp, 454 Mich 20, 27; 557 NW2d 541 (1997), overruled in part on other grounds
Sprietsma v Mercury Marine, 537 US 51 (2002). Consideration of issues arising under the
Supremacy Clause starts with the assumption that a state’s historic police powers are not
superseded unless that is the clear and manifest purpose of Congress. Allen-Bradley Local No
1111, United Electrical, Radio & Machine Workers of America v Wisconsin Employment
Relations Bd, 315 US 740, 749; 62 S Ct 820; 86 L Ed 1154 (1942). Congress’s purpose is
therefore “‘“the ultimate touchstone”’” of a preemption analysis. Cipollone v Liggett Group,
Inc, 505 US 504, 516; 112 S Ct 2608; 120 L Ed 2d 407 (1992) (citations omitted). “The basic
thrust of the [ERISA] preemption clause is to avoid a multiplicity of regulation in order to permit
the nationally uniform administration of employee benefit plans.” Yerkovich v AAA, 231 Mich
App 54, 67; 585 NW2d 318 (1998), rev’d on other grounds 461 Mich 732 (2000).
ERISA’s “preemption clause” provides, in relevant part:
Except as provided in subsection (b) of this section,[6] the provisions of
this subchapter and subchapter III of this chapter shall supersede any and all State
laws insofar as they may now or hereafter relate to any employee benefit plan
described in section 1003(a) of this title and not exempt under section 1003(b) of
this title. [29 USC 1144(a).]
State laws that “relate to” qualifying employee benefit plans are superseded by ERISA. 29 USC
1144(a); Yerkovich, 231 Mich App at 67. A law “relates to” a plan when it has a connection with
or reference to such a plan. Guidry v Sheet Metal Workers Nat’l Pension Fund, 39 F3d 1078,
1083 (CA 10, 1994) (Guidry III). “[A] preëmptive relationship to an ERISA plan is established
when state law interferes with a plan by: 1) altering the level of benefits which would be paid
out under a given plan from state to state, 2) altering the terms of a plan, such as the
requirements for eligibility, or 3) subjecting the fiduciaries of a plan to claims other than those
provided for in the ERISA itself.” Teper v Park West Galleries, Inc, 431 Mich 202, 214; 427
NW2d 535 (1988). Preemption turns on “whether state law places any fiscal, administrative, or
legal burdens upon the plan.” Id. at 218.
Neither Michigan’s laws concerning the enforcement of judgments nor its laws
concerning injunctive relief attempt to regulate ERISA plans. DeHaan argues, however, and we
agree, that the permanent injunction impermissibly interferes with DeHaan’s federally protected
rights as a plan participant by placing restrictions on his ability to withdraw or transfer funds
from his 401(k) account, in violation of ERISA’s antialienation provision, § 1056(d)(1), and in
contravention of the plan’s terms.
“Whether the trial court’s order effectuates an alienation or assignment of pension funds
under 29 USC 1056(d)(1) is a question of law” that we review de novo. Abbott, 468 Mich at
148. Questions regarding statutory interpretation and application are issues of law determined de
6
The parties implicitly agree that the exceptions in subsection 1144(b) do not apply here.
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novo on appeal. Yaldo v North Pointe Ins Co, 457 Mich 341, 344; 578 NW2d 274 (1998).
When interpreting a federal statutory provision, where the statute clearly addresses the issue at
hand, the statute is applied as written. Abbott, 468 Mich at 148. Where the text is silent or
ambiguous regarding the issue before the court, reference must be made to a federal agency’s
interpretation if it is based on a permissible construction of the statute. Id., citing Chevron USA
Inc v Natural Resources Defense Council, Inc, 467 US 837; 104 S Ct 2778; 81 L Ed 2d 694
(1984).
2
ERISA’s antialienation provision provides that “[e]ach pension plan shall provide that
benefits provided under the plan may not be assigned or alienated.” Section 1056(d)(1). ERISA
does not define the terms “assigned” and “alienated,” thus we look to the regulations
promulgated by the Secretary of Treasury, who has the authority to implement § 1056(d) of
ERISA. Chevron USA, 467 US at 844. 26 CFR 1.401(a)-13(c)(1) defines “assignment” and
“alienation” to include:
(i) Any arrangement providing for the payment to the employer of plan
benefits which otherwise would be due the participant under the plan, and
(ii) Any direct or indirect arrangement (whether revocable or irrevocable)
whereby a party acquires from a participant or beneficiary a right or interest
enforceable against the plan in, or to, all or any part of a plan benefit payment
which is, or may become, payable to the participant or beneficiary.
The protection of ERISA’s antialienation provision extends to involuntary alienation and is
applicable even when the participant has engaged in criminal or civil misconduct. Guidry I, 493
US at 376-377.
In Guidry I, the plaintiff was the chief executive officer of the Sheet Metal Workers
International Association, Local 9, and also a trustee of the union’s pension fund. Id. at 367.
The plaintiff pleaded guilty of embezzling from the union and began serving a prison term. Id. at
367-378. He filed a complaint under ERISA against two other pension plans in which he was a
participant, alleging wrongful refusal to pay benefits to which he was entitled. Id. at 368. The
plans contended that the plaintiff forfeited his right to receive benefits because of his criminal
misconduct. Id. They argued, in the alternative, that any benefits the plaintiff was entitled to
receive should be paid to the union rather than to him. Id. The lower court rejected the plans’
position that the plaintiff forfeited his right to benefits because ERISA provides that benefits are
not forfeitable even upon a showing of employee misconduct. Id. at 369. The union intervened,
seeking to have the court “‘restrain and enjoin the Pension Funds from paying any further
pension benefits’” to the plaintiff until they were made whole for their losses. Id. at 368 n 5.
The lower court subsequently concluded that ERISA’s prohibition on assignment or alienation
did not preclude the imposition of a constructive trust in favor of the union because “‘where the
viability of a union and the members’ pension plans was damaged by the knavery of a union
official, a narrow exception to ERISA’s anti-alienation provision is appropriate.’” Id. at 370.
The United States Court of Appeals for the Tenth Circuit affirmed, concluding that “ERISA’s
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anti-alienation provision could not be invoked to protect a dishonest pension plan fiduciary
whose breach of duty injured the beneficiaries of the plan.” Id. at 370.
The Supreme Court reversed, rejecting any equitable exception to the antialienation
provision, even for employee malfeasance or criminal misconduct. Id. at 376. The Court noted
that the antialienation provision, “reflects a considered congressional policy choice, a decision to
safeguard a stream of income for pensioners (and their dependents, who may be, and perhaps
usually are, blameless), even if that decision prevents others from securing relief for the wrongs
done them.” Id. Any exceptions must be stated by Congress.7 Id.
While the antialienation provision is subject to no exceptions, except those stated by
Congress, the prevailing view is that the provision does not apply to pension funds after the
funds are received by the beneficiary:
Four of the five courts of appeals to consider the question [whether
ERISA’s antialienation provision is violated by a court order that applies only
after pension benefits are disbursed] have construed § 1056(d)(1) [antialienation
provision] as applying to benefits only while held by the plan administrator and
not after they reach the hands of the beneficiary. Wright v. Riveland, 219 F.3d
905, 919-21 (9th Cir. 2000); Robbins v. DeBuono, 218 F.3d 197, 203 (2d Cir.
2000); Guidry v. Sheet Metal Workers Nat’l Pension Fund, 39 F.3d 1078, 1081­
83 (10th Cir. 1994) (en banc); Trucking Employees of North Jersey Welfare Fund,
Inc. v. Colville, 16 F.3d 52, 54-56 (3d Cir. 1994). . . .
The plain language of § 1056(d)(1) is that “[e]ach pension plan shall
provide that benefits provided under the plan may not be assigned or alienated.”
That language governs only the plan itself. Standing alone, it “does not read
comfortably as a prohibition against creditors reaching pension benefits once they
have left the hands of the administrator.” Robbins, 218 F.3d at 203. . . .
The regulations promulgated by the Secretary of Treasury, who has the
authority to implement § 1056(d) of ERISA, further reinforce our interpretation.
Those regulations, which are entitled to deference under Chevron, U.S.A., Inc. v.
Nat. Res. Def. Council, Inc., 467 U.S. 837, 844, 104 S.Ct. 2778, 81 L.Ed.2d 694
(1984), define the terms “assignment” and “alienation” to cover:
“(i) Any arrangement providing for the payment to the employer of plan
benefits which otherwise would be due the participant under the plan, and
“(ii) Any direct or indirect arrangement (whether revocable or irrevocable)
whereby a party acquires from a participant or beneficiary a right or interest
7
In 1997, Congress amended the ERISA by adding an exception for restitution to the plan itself
for a crime or tort against the plan. 29 USC 1056(d)(4). That exception is not applicable here.
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enforceable against the plan in, or to, all or any part of a plan benefit payment
which is, or may become, payable to the participant or beneficiary.”
26 C.F.R. § 1.401(a)-13(c)(1) (emphasis added). Once benefits are
distributed to the beneficiary, a creditor’s rights are enforceable against the
beneficiary, not against the plan itself . . . . [Hoult v Hoult, 373 F3d 47, 54-55
(CA 1, 2004) (some emphasis added).]
In granting the instant injunction, the circuit court relied on Abbott, 468 Mich at 143. In
Abbott, the State Treasurer filed a complaint under the State Correctional Facility
Reimbursement Act (SCFRA), MCL 800.401 et seq., seeking to recover the costs of the
defendant’s prison confinement. Abbott, 468 Mich at 145. The treasurer sought to have the
defendant’s monthly pension payments deposited to his prison account rather than his credit
union. Id. at 145, 160. The trial court granted the relief requested, but this Court reversed,
holding that the order violated ERISA’s antialienation provision. Id. at 146. This Court relied
on an almost-identical case brought in federal district court in which the State Treasurer sought
to direct a pension plan to deposit benefits into an inmate’s prison account. Id. at 147, citing
State Treasurer v Baugh, 986 F Supp 1074 (ED Mich, 1997). In Abbott, the State Treasurer
attempted to distinguish Baugh on the basis that there was no claim against the pension plan in
Abbott; rather, the order was directed to the defendant. Abbott, 468 Mich at 147. This Court
ruled, however, that the effect of the trial court’s order was to require the pension fund to make
payments to the defendant’s prison account against his will, and that this involuntary transfer
constituted an assignment that contravened the antialienation provision of ERISA. Id. at 147.
Our Supreme Court reversed, concluding that, because the order was directed to the defendant, it
did not constitute a transfer to another person, so it was not an assignment or alienation contrary
to ERISA. Id. at 151. The Supreme Court reasoned that, because the order merely directed the
defendant to receive his benefits at his own address, it did not transfer any legal title to, or
interest in, the funds to another person, so it was not contrary to ERISA’s antialienation
provision. Id.
HSD argued below that Abbott is dispositive and permits the restraints imposed by the
injunction; the circuit court agreed. DeHaan maintains that Abbott is distinguishable because the
defendant in Abbott was already receiving pension benefits at his credit union account, and that
Abbott only applies to funds already being paid to a participant.
During the pendency of this appeal, the United States Circuit Court of Appeals for the
Sixth Circuit decided DaimlerChrysler Corp v Cox, 447 F3d 967 (CA 6, 2006). The issue
presented in DaimlerChrysler was “whether Michigan’s State Correctional Facility
Reimbursement Act (SCFRA), in conjunction with other Michigan laws and with directives from
the Michigan Department of Corrections (MDOC), runs afoul of the federal Employee
Retirement Income Security Act (ERISA) in cases where prisoners refuse to inform their pension
plans of a change of address.” Id. at 968. The court answered in the affirmative,
notwithstanding Abbott:
We acknowledge that the Michigan Supreme Court addressed notices and
orders under SCFRA that were similar to the notices and orders at issue here in
State Treasurer v. Abbott, 468 Mich. 143, 660 N.W.2d 714, 719 (2003), and that
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the Michigan Supreme Court reached the opposite conclusion. The Court held
that because money had not been transferred from the pension plan at issue to
“another person” instead of to the prisoner, no alienation had occurred. Because
the prisoners had received their benefit payments at their own institutional
addresses, and because these benefits were not attached until they were paid to the
prisoners, the Michigan Supreme Court held that there was no alienation. Id.
We find the Abbott opinion unpersuasive. Contrary to the reasoning of the
Michigan Supreme Court, the fact that the prisoners have received their benefit
payments at their “own” addresses is irrelevant to the question of alienation
because (1) the prisoners did not want to receive the payments at their
institutional addresses, (2) Michigan law strictly controls a prisoner’s bank
account and how the funds may be used, and (3) the state already effectively
owned 90% of the payments even before they were received. The fact that the
payments were sent to the prisoner’s institutional address is therefore a mere
formalism that is not dispositive of whether an alienation has occurred in the
present case.
Although we hold that SCFRA as applied in this case is preempted by
ERISA, we are not rendering the state incapable of seeking reimbursement using a
prisoner’s pension benefits. Once the benefit payments are received, even if the
prisoner tries to conceal them in an illegal account, the state can take action
against the prisoner by placing a constructive trust on those already-paid funds.
See Guidry II,[8] 39 F.3d at 1082-83. The state must, however, wait for the
Pension Plan to send the benefit payments at the direction of the prisoner before
the state encumbers those payments. To do otherwise would violate both the
letter and the spirit of ERISA’s anti-alienation provision (which, at a minimum,
prohibits the attachment of a debtor’s pension plan benefits while still controlled
by the pension plan) and the terms of the Pension Plan forbidding the benefits
from devolving upon others. . . .
Because we hold that SCFRA orders and notices are preempted by
ERISA’s anti-alienation provision, we need not address whether the orders and
notices are also preempted by ERISA’s general preemption provision. That
question can wait for another day when it may prove dispositive in a case then
before the court. [Id. at 975-976 (emphasis added).]
3
ERISA additionally provides that a plan must be administered as written. 29 USC
1104(a)(1)(D) states:
8
The various decisions in Guidry refer to this opinion as Guidry III.
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(a) Prudent man standard of care
(1) [A] fiduciary shall discharge his duties with respect to a plan solely in
the interest of the participants and beneficiaries and—
***
(D) in accordance with the documents and instruments governing the plan
insofar as such documents and instruments are consistent with the provisions of
this subchapter and subchapter III of this chapter.
The instant plan provides that a participant is entitled to elect a direct rollover of funds into an
IRA:
[A] Distributee may elect, at the time and in the manner prescribed by the
Plan Administrator, to have a portion of the Eligible Rollover Distribution paid
directly to an Eligible Retirement Plan specified by the Distributee in a Direct
Rollover. [Emphasis added.]
4
We conclude that certain provisions of the permanent injunction entered in this case are
impermissible under ERISA.
a
DeHaan first challenges the requirement that he provide HSD with 30 days written notice
before transferring, disposing of, encumbering, taking a distribution of, or liquidating his interest
in the ERISA plan. We agree with DeHaan that the court cannot impose conditions on DeHaan’s
exercise of his rights under the plan. The plan’s provisions regarding notice must control.
b
DeHaan also challenges the provision that requires him to direct the plan administrator to
transfer any direct-rollover IRA distributions to a financial institution and account selected by
HSD.9 HSD argues that Abbott permits such a restraint. We conclude that this provision violates
DeHaan’s rights under ERISA. To be sure, Abbott includes language indicating that a court may
order a plan participant to direct that plan proceeds be paid into a particular account, as long as
that account is in the participant’s name, because doing so does not create a right or interest in a
third party enforceable against the plan. Abbott, 468 Mich at 151. However, Abbott is
9
While DeHaan agreed that HSD could select the account into which he received any
distributions “to himself,” he at all times objected to HSD’s exercising control over any direct­
rollover IRA distributions.
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distinguishable.10 In Abbott, the prisoner was already receiving pension payments payable to
himself, and the order simply required him to receive those payments at his current (prison)
addresses. Here, the challenged provision of the order grants HSD the right to select the
financial institution and account into which DeHaan’s ERISA benefits will be rolled over, which
clearly involves more than a change of address.11 Also of considerable importance is that HSD
has made clear that the purpose of the provision is to allow HSD to intercept the payments
midstream, before they are received into the IRA account.12 This is far different from the
circumstances in Abbott, where the payments were made into the prisoner’s account, and the
warden then asserted rights under the SCFRA. The Abbott Court found this distinction relevant:
The dissent asserts that the warden obtains a property interest in the funds
before depositing them in defendant’s prison account. The trial court’s order,
however, compels the warden to deposit the funds in defendant’s prison account,
thus ensuring that defendant receives the funds before they are distributed under
the SCFRA. The warden essentially acts as a bank teller—he must deposit the
funds in defendant’s account upon receipt. Thus, the warden does not obtain any
interest in, or title to, the pension funds before depositing them in defendant’s
account and has no discretion or right to use the funds. [Abbott, 468 Mich at 151
n 9 (emphasis in original).]
In contrast to the arrangement in Abbott, HSD proposes to intercept the rollover payment before
it reaches the IRA account.
Further, this provision of the order is in direct conflict with the plan’s terms, which
clearly state that the distributee may elect, in the manner prescribed by the plan administrator, to
have a portion of the eligible rollover distribution paid directly to an eligible retirement plan,
specified by the distributee, in a direct rollover. Thus, the plan itself provides that the distributee
10
DaimlerChrysler, supra, decided after Abbott, indicates that a court cannot order the
involuntary direction of ERISA benefits into an account selected by a third party, and that such
an order effects an indirect arrangement whereby the third party acquires from the participant a
right enforceable against the plan in, or to, all or any part of a plan benefit payment that is, or
may become, payable to the participant.
11
It is not even clear from the order whether the account will be in DeHaan’s name, or who will
choose the IRA trustee.
12
HSD asserts that the moment DeHaan’s funds leave the plan, e.g., for split seconds during
electronic transfer to an IRA, the court and, through its order, HSD, can assert control over the
funds. Although HSD argues that the funds would be outside ERISA’s protections after the
funds leave the plan and before they are deposited into an IRA, it has failed to explain how it
would be entitled to capture those funds, midtransaction, and redirect them to itself when the
payee of the transfer is the IRA plan or trustee. A direct rollover is effectuated by a direct
payment to either an IRA plan or IRA trustee. Treasury Regulation 1.401(a)(31)-1.
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shall specify the eligible retirement plan into which the funds will be paid, and provides as well
that the funds will be paid directly to the plan. Contrary to HSD’s argument, the court cannot
take control of the funds the moment they leave the plan, and while they are en route to the IRA
account, because to do so would deprive DeHaan of other rights under the plan—the right to
elect a direct rollover to an eligible plan of his choice. Thus, ¶ 3 of the injunction cannot stand.
II
DeHaan also challenges the restrictions placed on his access to a rollover IRA account.
Once the funds are in an IRA account, they are no longer protected by ERISA. See In re Houck,
181 BR 187, 191-192 (Bankr ED Pa, 1995) (“IRAs are tax qualified . . . but they are not subject
to ERISA and are specifically excepted from ERISA’s anti-alienation requirement,” citing 29
USC 1051[6] and 29 CFR 2510.3-2[d]).13 DeHaan maintains, however, that once deposited in an
IRA, the funds are protected under state law exempting IRAs from execution, MCL
13
29 CFR 2510.3-2 provides, in pertinent part:
(a) General. This section clarifies the limits of the defined terms
“employee pension benefit plan” and “pension plan” for purposes of title I of the
Act and this chapter by identifying certain specific plans, funds and programs
which do not constitute employee pension benefit plans for those purposes . . . .
***
(d) Individual Retirement Accounts. (1) For purposes of title I of the Act
and this chapter, the terms “employee pension benefit plan” and “pension plan”
shall not include an individual retirement account described in section 408(a) of
the Code [Internal Revenue Code of 1954], an individual retirement annuity
described in section 408(b) . . . and an individual retirement bond described in
section 409 of the Code, provided that—
(i) No contributions are made by the employer or employee association;
(ii) Participation is completely voluntary for employees or members;
(iii) The sole involvement of the employer or employee organization is
without endorsement to permit the sponsor to publicize the program to employees
or members, to collect contributions through payroll deductions or dues checkoffs
and to remit them to the sponsor; and
(iv) The employer or employee organization receives no consideration in
the form of cash or otherwise, other than reasonable compensation for services
actually rendered in connection with payroll deductions or dues checkoffs.
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600.6023(1)(k).14 The circuit court’s analysis focused on the extent to which it could limit
DeHaan’s ability to transfer the funds under ERISA. The court did not address DeHaan’s rights
under MCL 600.6023(1)(k), or the extent to which HSD could reach the funds after they are in
an IRA. Although DeHaan referred to the statute in argument on the motion to settle the form of
the order, the parties agreed that the issue was not discussed in the briefs and was not before the
court. The matter should be addressed to the circuit court on remand.
We vacate the injunction and remand for proceedings consistent with this opinion. We
do not retain jurisdiction.
/s/ Peter D. O’Connell
/s/ Helene N. White
/s/ Jane E. Markey
14
MCL 600.6023 provides, in pertinent part:
(1) The following property of the debtor and the debtor’s dependents shall
be exempt from levy and sale under any execution:
***
(k) An individual retirement account or individual retirement annuity as
defined in section 408 or 408a of the internal revenue code of 1986 and the
payments or distributions from such an account or annuity.
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